IFS: The idea that Britain would be better off after Brexit is 'absurd'

Britain may make some short-term savings if the UK votes to leave
the European Union but in the long term, the nation would return
to implementing austerity measures because the economy would
shrink, says the Institute of Fiscal Studies.

The economics think tank said that any suggestion by the Vote
Leave campaign that Britain would save a lot of money from
leaving the EU is "clearly absurd."

Carl Emmerson, Paul Johnson, Ian Mitchell, and David Phillips
said in a report, entitled "BrExit and the UK’s
public finances," that while Britain would suddenly find
itself £8 billion ($11.69 billion) better after ending payments
to the EU, the UK economy would actually then shrink over
the course of two years.

So how would this happen, considering Britain would stop giving
the 28-nation bloc £8 billion annually? Because Britain would
have to borrow more to balance its budget.

IFS

Here is the key passage from Paul Johnson, IFS director and an
author of the report (emphasis ours):

Leaving the EU would most likely increase borrowing by
between £20 and £40 billion in 2019–20. Getting to
budget balance from there, as the government desires,
would require an additional year or two of austerity at
current rates of spending cuts.

Or we could live with higher borrowing and debt.

These are real costs, but they are costs we could choose to bear
if it was felt that they – and other costs – were outweighed by
advantages from Brexit in other realms.

In a more detailed part of the report, the IFS looked at Vote
Leave's numbers and called its assessment of Britain's EU
contributions as "clearly inappropriate" and "clearly absurd"
(emphasis ours):

But in this context, ignoring the rebate is clearly
inappropriate. It is equivalent to suggesting that were
the UK to leave the EU and not make any financial contribution to
the EU’s budget then remaining EU members would continue to pay
the rebate to the UK. That is clearly absurd.

The correct figure to use for the UK’s gross financial
contribution takes account of the rebate. It stood at £14.4
billion, or 0.8% of GDP, in 2014.1 (This is equivalent to around
£275 million a week.)

The IFS, citing the National Institute of Economic and Social
Research, said GDP in 2019 could be between 2.1% and 3.5% points
lower as a result of a Brexit.

Carl Emmerson, IFS deputy director and an author of the report,
says: "The precise effects of leaving the EU on the British
economy and hence the knock-on impact on the public finances is
uncertain. But the overwhelming weight of analysis suggests that
the economy would shrink by more than enough to offset the
positive effect on the public finances of the reduced financial
contribution to the EU budget."

Here is where the IFS thinks public spending cuts are likely to
fall (emphasis ours):

Just to get to budget balance, as the government aims to do,
would require the equivalent of an additional £5 billion
of cuts to public service spending in 2019–20, an
additional £5 billion of cuts to social security spending
anda tax rise of more than £5 billion;

On less optimistic scenarios, borrowing could be £40 billion
higher in 2019–20 than currently planned;

It is unlikely that government would respond with bigger
spending cuts and tax rises in the short run. More likely
“austerity” would be extended by another year (optimistic
scenario) or another two years;

In any of these scenarios public sector debt would be
significantly higher than planned by the end of the
parliament.